Samsung flags 78% drop in Q3 profit as chip losses extend

Samsung Electronics Co Ltd, the world’s largest memory chip and smartphone maker, has reported a likely 78% drop in third-quarter operating profit. This decline is attributed to the ongoing global chip glut, which has led to losses in Samsung’s cash cow business. Despite the challenging market conditions, the company’s profit of 2.4 trillion won ($1.79 billion) exceeded expectations, beating the LSEG SmartEstimate of 2.1 trillion won.

The news of Samsung’s better-than-expected profit has had a positive impact on the market, with the company’s shares rising 3.3% in early trade. This increase outperformed the wider market, which saw a 1.8% rise. Although the third-quarter profit is significantly lower compared to the previous year, it is an improvement from the first and second quarters of this year.

In the first quarter, Samsung reported its lowest profit since 2009, with losses of 4.58 trillion won in its chip business. These losses continued into the second quarter, with a reported 4.36 trillion won. The global economic slowdown and high interest rates have contributed to a decrease in demand for consumer goods, leading chipmakers to reduce production to counter falling prices.

However, analysts suggest that Samsung’s losses in the memory chip business have likely decreased to around 3 trillion won in the third quarter. This improvement can be attributed to the company’s focus on more profitable, higher-end chips, such as DRAM chips used in artificial intelligence. Samsung has also continued to reduce production of older legacy chips.

Rival chipmaker Micron Technology also forecasted a quarterly loss last month, raising concerns about the recovery of the memory chip market. Nevertheless, there is optimism as prices of DRAM chips, used in tech devices, started rebounding towards the end of the last quarter. Additionally, prices of NAND Flash chips, used in data storage, are expected to recover as early as the current quarter. This indicates a potential end to the severe industry downturn that began last year.

Despite the challenges in the chip business, Samsung’s mobile and display businesses typically perform well in the third quarter. This is due to the launch of flagship smartphones and increased demand for display panels from clients like Apple before the release of the latest iPhone.

While the detailed earnings report will be released on October 31, Samsung’s preliminary earnings statement already indicates a 13% decline in revenue from the same period last year, amounting to 67 trillion won. The company’s ability to navigate the challenging market conditions and deliver better-than-expected results showcases its resilience and adaptability.

Samsung’s ongoing focus on innovation and its ability to prioritize higher-end chips in response to market demands position the company for future success. As the memory chip market shows signs of recovery, Samsung is well-positioned to capitalize on emerging opportunities and maintain its position as a global leader in the technology industry.